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Things to Know About Bankruptcy

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Many people believe that filing for bankruptcy may help them avoid serious financial problems in times when they are drowning in debt. Indeed, bankruptcy may become your powerful tool to stop phone calls and collection actions as well as some lawsuits. It can eliminate your debt including medical bills, credit card debt, and even same day loans payday. However, there are certain occasions when even filing for bankruptcy can’t stop every creditor and eliminate all of your financial obligations. Keep reading to find out what you should know about bankruptcy if you are considering this option.

Why People Face Bankruptcy

Our life is full of ups and downs. The same is true about our financial situation. It may be stable one day with a steady full-time job and great health but end up facing serious problems the next day. There are many reasons why people take loans or cash advances. In most cases, it happens when a person has several downturns at once and can’t solve their financial issues.

Often the situation with finances can get even worse when you are not able to make not just payments ahead of schedule but even repay the debt on schedule. This happens when your loans and total debt grows so big that you can’t repay it. When the situation goes completely out of control it’s time to consider filing for bankruptcy.

The Basics of Bankruptcy

Let’s start with the basics and try to understand what bankruptcy means. There are two types of bankruptcy. They are Chapter 7 and Chapter 13. The first one means a person needs to pass a means test proving that they don’t have enough income to repay the debt. Chapter 7 allows eliminating almost all kinds of debt. If a person can’t pass a means test they can file for Chapter 13 bankruptcy. This way they will be allowed to make a repayment plan and pay the total debt off during the period of three to five years.

It Is a Tedious Process?

Another thing to consider is the duration of the whole process. It is not a one-day experience to file for bankruptcy. The shortest period of four to six months is for Chapter 7 option, and this process can last up to five years for Chapter 13. Not just you will need to undergo through this tedious and long process but also your finances will be exposed to the public.

If you are not comfortable with telling your income or discussing financial matters with your friends and family, you will have to be prepared for that. All of your mistakes, loans, and financial life will be open. More than that, a lot of paperwork needs to be filed and submitted, which is called bankruptcy schedules. The meeting with creditors will also be open to the public and each of them will be able to ask you various questions. You could take out loans without bank account in the past and nobody would know about that, but now everything will be exposed.

What Bankruptcy Can’t Do

However, bankruptcy can’t simply take the entire debt burden off your shoulders and cure all your financial problems. Here are some things it can’t do.

  • Prevent you from having to pay off student loans. Even bankruptcy can’t discharge you from having to repay the student loan. It can be done only in limited cases when a person can prove that they won’t be able to make ends meet and will inevitably face hardship if they continue repaying it. Also, you will have to prove that you won’t be able to pay the student loan in the future as well.
  • Prevent you from having to pay alimony obligations and child support. A person will have to keep on paying these obligations even in case of bankruptcy. In addition, you will need to pay this debt according to your schedule in full if you have Chapter 13.
  • Prevent you from paying tax debts. Although it is possible in certain cases, you will still have to pay your tax debts even if you file for bankruptcy.

Consider this information before you decide whether filing for bankruptcy is the best option to save your financial life and get rid of debt.

Honesty and Attention Are Required

If you decide to file for bankruptcy as it seems to be the only logical way out of debt, remember to be completely honest when filling in the papers. You will need to mention all your creditors, debts as well as any property you possess. Don’t even think about hiding something as the truth will be revealed sooner or later and you may end up facing a federal crime. The forms and papers you need to fill in require your attention as they are rather complicated and include tricky questions.

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